Hospitality Debt Restructuring Research
Perplexity research briefing (April 2026) analysing debt management options for a 200-capacity Victorian hospitality venue with $357,000 in total debt across three facilities. Commissioned to evaluate refinancing, restructuring, and informal workout pathways.
Central Finding
The venue has a manageable debt-to-revenue ratio (35.7%) but a severe serviceability problem. Annual debt repayments on the two commercial facilities total ~$111,000 — likely exceeding EBITDA of $80,000–$120,000 (ATO hospitality benchmarks). The Lumi Finance facility is the primary cash drain at ~$83,400/year. The business is likely cash-flow negative on a structural basis.
Debt Structure
| Facility | Outstanding | Rate | Annual Service | Notes |
|---|---|---|---|---|
| Lumi Finance | $144,800 (stated) | ~30% APR (implied) | ~$83,400 | Primary cash drain; $28k–$35k embedded future interest |
| Westpac commercial | $88,400 | ~6.5% (est.) | ~$27,600 | Existing relationship |
| Intercompany loan | $124,000 | 0% (undocumented) | $0 | Compliance risk under thin capitalisation rules |
| Total | $357,200 | — | ~$111,000 | Exceeds estimated EBITDA |
Three Pathways
Pathway 1: Refinance/Consolidate (Preferred)
Consolidate Lumi + Westpac ($233,200) into a bank-secured facility at 7.5–9.5%. Requires property security (residential at 80% LVR or commercial at 65–70% LVR).
| Rate | Term | Monthly Payment | Annual Saving vs Current |
|---|---|---|---|
| 7.5% | 5 years | $4,673 | $55,092/year |
| 8.5% | 7 years | $3,693 | $66,852/year |
| 9.5% | 7 years | $3,811 | $65,436/year |
Top lender recommendations: Westpac (existing relationship, BizEdge auto-decisioning), Judo Bank (dedicated hospitality lending team, Melbourne HQ, terms up to 15 years), Green Finance Group (specialist pub/club/hotel broker, no borrower fee).
Pathway 2: Small Business Restructuring (Part 5.3B)
If refinancing is not achievable. At 20–25¢ in the dollar: plan payment $71,400–$89,250 + SBRP fees ~$20,000–$25,000 = total outlay ~$90,000–$115,000 to resolve $357k. Directors retain control. 87% plan approval rate, 92% fulfilment rate, 92% business survival at 1 year (ASIC REP 810, June 2025).
Pathway 3: Informal Workout
Negotiate early settlement with Lumi (may accept 70–85¢ discount) + formalise intercompany loan separately. Variable outcome dependent on Lumi cooperation.
Lumi Finance Analysis
- Published rate range: 15.5%–44.5% APR (money.com.au)
- Implied rate for this borrower: ~30% APR (confirmed by mathematical analysis of payment schedule)
- $144,800 “outstanding” includes ~$28,000–$35,000 in embedded future interest — not true principal
- Implied remaining principal: ~$116,000
- No early repayment penalty; Lumi “may provide a discount on the remaining interest”
- Hardship policy restrictive: will not offer term extensions or interest freezes, only temporary payment reductions/pauses
- If Lumi refuses hardship: escalate to AFCA (1800 931 678) — suspends all collection action
Square Capital Analysis
Square Loans are fixed-fee term loans with repayment as a % of daily card sales. The fee is fixed regardless of repayment speed, creating an inverse APR trap: faster repayment = higher effective APR (3 months = ~52% APR; 18 months = ~8.7% APR). Further draws should be avoided — creates ecosystem lock-in with no early repayment benefit.
Director Duties and Safe Harbour
Directors face personal civil liability for debts incurred while insolvent (s588G). ATO issued 84,529 Director Penalty Notices in 2024–25 — up 136% YoY. Safe harbour (s588GA) protects directors while developing a genuine restructuring plan, requiring: documented course of action, employee entitlements current, tax lodgements current, advice from qualified entity. 78% of companies that engaged safe harbour avoided formal insolvency (Clifford Chance).
Intercompany Loan Risk
The undocumented $124,000 interest-free intercompany loan is a compliance risk under ATO’s post-July 2023 thin capitalisation rules. Must be formalised: create loan agreement, set arm’s length interest rate, establish repayment schedule. Do NOT include in bank consolidation (would add ~$9,300–$11,800/year in new interest cost on currently zero-cost facility).
Immediate Actions
- Call Lumi (1300 005 864) — request formal payout figure including early settlement discount
- Check ATO compliance — confirm all BAS/tax returns lodged, all super current, no DPNs issued
- Engage registered insolvency practitioner — free initial consultation (Worrells, Jirsch Sutherland, Rapsey Griffiths)
- Meet Westpac business banker — present consolidation case
- Approach Judo Bank hospitality team — second quote
- Engage tax adviser — review intercompany loan, thin capitalisation compliance
- Formalise intercompany loan — arm’s length terms, documented agreement
Key Contacts
| Service | Phone | Use |
|---|---|---|
| Lumi Finance | 1300 005 864 | Payout figure, early settlement |
| AFCA | 1800 931 678 | Lender dispute resolution (free) |
| Small Business Debt Helpline | 1800 413 828 | Free financial counselling |
| ASBFEO | 1300 650 460 | Federal ombudsman, subsidised legal |
| Business Victoria | 13 22 15 | Free mentoring, grants finder |
Related Pages
- Debt Restructuring Options — compiled pathways and decision framework
- Lumi — entity page with loan details
- Westpac — entity page with banking relationship
- Square Capital Loans Issue — Square loan accounting
- Cash Forecasting — cash flow and serviceability
- Governance Gaps and Risks — director duties and safe harbour
- Compliance Obligations — thin capitalisation, ATO DPNs
- Interest Expense Recognition — intercompany loan formalisation